Whenever the issue of
economic exploitation and the “drain of wealth” during the 200 years of
British colonial rule comes up, the one rebuttal from western historians
is that there is scant evidence to prove it. To bolster the argument, the
point is then made that Indian historians are nationalist, biased
(sometimes as a consequence) and do not pay attention to figures and
statistical evidence.

In my analysis of this topic, I have
therefore, relied heavily on recent research by Western historians and
tried to draw conclusions based on that.

Even by the accounts of western
historians, the positive impact of British rule, which PM Sh. Man Mohan
Singh had so pointedly mentioned during
his speech at Oxford in Jul ’05, is questionable.

The “drain of wealth” from India to
Britain during the two centuries of colonial rule was very real, very
substantial and there are strong reasons to believe that India may have
looked significantly different (and far better) economically and socially
had it not been for the two centuries of British rule.

The beginning of this period
can probably be traced back to the Battle of Plasssey. As Prof. Richards
writes in the introduction to his paper “Imperial Finance Under the East
India Company 1762-1859”[i],
“On June 23,1757, Robert Clive, commanding a small force of East India
Company professional troops, defeated and killed Siraju-ud-daula, the
ruling Nawab of Bengal, on the battlefield of Plassey. The battle marked a
significant turning point in world history, for it permitted the English
East India Company to gain control over the rich resources of the Mughal
successor state in northeastern Bengal and Bihar.

…This was the starting point
for a century-long process of British conquest and dominion over the
entire Indian subcontinent and beyond.”

To help grasp the full extent of this
exploitation, I have split my analysis into five parts. In Part 1, I look
at the tax regime and the burden of administrative machinery. In Part 2, I
try to get behind the assertion that the British contributed much to the
improvement of education and public works in India. In Parts 3 and 4, I
look at unfair trade practices and the drain of wealth. In the final part,
I have tried to summarize the impact of these 200 years of servitude.

TAXES & ADMINISTRATIVE BURDEN

In their recent
research on deindustrialization in India[ii],
Profs Williamson and Clingingsmith mention that while the maximum revenue
extracted by the Mughals as high as 40%, this paled in comparison to the
effective tax rate in the early years of colonial rule: “as central
Mughal authority waned, the state resorted increasingly to revenue
farming…(raising) the effective rent share to 50% or more…”

Further, “There is no reason to believe
that when the British became rulers of the successor states the revenue
burden declined (pg 7)”.

After
initial attempts at revenue farming, Company officials aggressively
introduced new taxes in an attempt to reduce their dependence on agrarian
production, thus worsening the tax burden on the common man.

As Prof
Richards points out in his paper (Ref 1),
“Land revenue continued to be the mainstay of the regime until the end of
British rule in India, but its share of gross revenues was far less than
under the Mughal emperors…To a larger degree, however, new taxes not
imposed by the Mughals accounted for land revenue’s declining share.
Company officials began early to diversify their tax base so that the new
regime was not so overwhelmingly dependent upon agrarian production. “

In his
research on the subject, Prof Maddison[iii]
mentions the burden imposed by the administrative machinery of the State:
“…British salaries were high: the Viceroy received £25,000 a year, and
governors £10,000…From 1757 to 1919, India also had to meet administrative
expenses in London, first of the East India Company, and then of the India
Office, as well as other minor but irritatingly extraneous charges. The
cost of British staff was raised by long home leave in the UK, early retirement and lavish amenities
in the form of subsidized housing, utilities, rest houses, etc.”

Prof. Richards
mentions that although
the Company “raised their revenue demands in each territory … to the
highest assessments made by previous Indian regimes” they were still
insufficient to “meet the combined administrative, military and
commercial expenses of the Company”

********

SPENDING ON EDUCATION &
PUBLIC WORKS

Although there is a prevalent myth around
British contribution to development if education and infrastructure in
India, in reality, the situation was quite different.

Prof Maddison writes that as late as 1936,
the bulk of government expenditure was focused more on ensuring the
stability of the empire than anything else: “Even in 1936, more than
half of government spending was for the military, justice, police and
jails, and less than 3 per cent for agriculture (pg 4)”

Amidst
all the paraphernalia of the “Raj”, public works and social expenditure
was completely forgotten. As Prof. Richards notes“…the Company
allocated negligible funds for public works, for cultural patronage, for
charitable relief, or for any form of education….(confining) its
generosity to paying extremely high salaries to its civil servants and
military officers. Otherwise parsimony ruled.”

The
following excerpt from Prof Maddison’s essay squarely debunks the notion
that the British did a lot for education and were conscious of the wealth
of ancient knowledge – some of which was still extant at the time. The
contempt that Macaulay felt towards the knowledge and wisdom of ancient
Hindus is evident from this quote:

” We are a Board for wasting public money,
for printing books which are less value than the paper on which they are
printed was while it was blank; for giving artificial encouragement to
absurd history, absurd metaphysics, absurd physics, absurd theology ... I
have no knowledge of either Sanskrit or Arabic ... But I have done what I
could to form a correct estimate of their value ... Who could deny that a
single shelf of a good European library was worth the whole native
literature of India and Arabia ... all the historical information which
has been collected from all the books written in the Sanskrit language is
less valuable than what may be found in the most paltry abridgements used
at preparatory schools in England. (pg 5)”

Unsurprisingly, “(pg 6)
The education system which developed was a very pale reflection of that in
the UK. Three universities were set up in 1857 in Calcutta, Madras and
Bombay, but they were merely examining bodies and did no teaching.
Drop-out ratios were always very high. They did little to promote analytic
capacity or independent thinking and produced a group of graduates with a
half-baked knowledge of English, but sufficiently Westernized to be
alienated from their own culture.

“…the great mass of the population had no
access to education and, at independence in 1947, 88 per cent were
illiterate… at independence only a fifth of children were receiving any
primary schooling.”

Education was used as a tool “…to turn a tiny elite into imitation
Englishmen and a somewhat bigger group into government clerks.”

If we turn our eyes to other
areas of development, the picture does not improve.

In spite of agriculture being
- by far - the most significant part of the economy, “Little
was done to promote agricultural technology. There was some improvement in
seeds, but no extension service, no improvement in livestock and no
official encouragement to use fertilizer. Lord Mayo, the Governor General,
said in 1870, “I do not know what is precisely meant by ammoniac manure.
If it means guano, superphosphate or any other artificial product of that
kind, we might as well ask the people of India to manure their ground with
champagne” (Pg 11).

In his
analysis of the various charges and expenses that the Company incurred,
Professor Richards mentions how Company officials were extremely wary of
any public works spending uinless it was for projects of direct use to the
state.

The
following sentences are instructive and effectively blast the myth that
the British did lasting good by building modern infrastructure in India: “The
Company even failed to repair and maintain roads, river embankments, and
bunded storage tanks for irrigation that had been the responsibility of
earlier regimes. When, in 1823, the Governor General in Council decided
to devote a portion of anticipated surplus revenues to works of public
improvement, the Court of Directors rejected this proposal. When, the
Directors learned of heavy expenditures on buildings in the mid 1820’s,
they wrote to the Governor General to condemn this extravagance.”

“As
early as 1812, an East India Company Report had stated "The
importance of that immense empire to this country is rather to be
estimated by the great annual addition it makes to the wealth and capital
of the Kingdom....."

Few
would doubt that Indo-British trade may have been unfair - but it may be
noteworthy to see how unfair. In the early 1800s imports of Indian cotton
and silk goods faced duties of 70-80%. British imports faced duties of
2-4%!

As a
result, British imports of cotton manufactures into India increased by a
factor of 50, and Indian exports dropped to one-fourth! A similar trend
was noted in silk goods, woollens, iron, pottery, glassware and
paper…millions of ruined artisans and craftsmen, spinners, weavers,
potters, smelters and smiths were rendered jobless and had to become
landless agricultural workers.”

The
monopoly on trade in salt and opium was an important mainstay of the
Company’s finances. Prof. Richards notes that “Together opium and salt
produced on average 18.9 percent of gross revenues. In last fifteen years
of Company rule their share climbed to 25.1 percent, as opium became one
of the most valuable commodities sold in world commerce.”

Prof.
Richards has noted Edmund Burke’s report that accompanied the Select
Committee of Parliament meetings in 1782-1783 to investigate the Company’s
affairs. To quote Edmund Burke:

“But
at, or very soon after, the Acquisition of the Territorial Revenues to the
English Company…a very great Revolution took place in Commerce as well as
in Dominion;….From that Time Bullion was no longer regularly exported by
the English East India Company to Bengal, or any part of Hindustan;.… A
new Way of supplying the Market of Europe by means of the British Power
and Influence, was invented; a Species of Trade (if such it may be called)
by which it is absolutely impossible that India should not be radically
and irretrievably ruined…”.

This is how the pernicious
system worked: “A certain Portion of the Revenues of Bengal has been
for many Years set apart, to be employed in the Purchase of Good for
Exportation to England, and this is called The Investment, The Greatness
of this investment has been the standard by which the merit of the
Company’s Principal Servants has been generally estimated; and this main
Cause of the Impoverishment of India has generally been taken as a Measure
of its Wealth and Prosperity….

This Export from India seemed
to imply also a reciprocal Supply, which the Trading Capital employed in
these Productions was continually strengthened and enlarged. But the
Payment of a Tribute, and not a beneficial Commerce to that Country, wore
this specious and delusive Appearance.”

********

THE DRAIN OF WEALTH

However, the high taxes, the
heavy burden of state, the neglect of education and public works and
unfair trade practices – these were only the tip of the iceberg.

The most damning evidence of
British exploitation was the irrefutable “drain of wealth” that took place
over the period of two centuries.

Prof. Williamson and Clingingsmith have
noted that “between 1772 and 1815 there was a huge net financial
transfer from India to
Britain in the form of Indian goods. The “drain resulting from contact
with the West was the excess of exports from India for which there was no
equivalent import” included
“a bewildering variety of cotton goods for re-export or domestic
[consumption], and the superior grade of saltpeter that gave British
cannon an edge”

Javier Cuenca Esteban estimates these net
financial transfers from India to Britain reached a peak of £1,014,000
annually in 1784-1792 before declining to £477,000 in 1808-1815 (Pg 9).”

However even this high figures are
significantly lower than the estimates by Prof John Richards (cited later
in this essay).

Like all other commentators, Maddison too
has mentioned the debilitating effect of the drain of funds from India:
“Another important effect of foreign rule on the long-run growth potential
of the economy was the fact that a large part of its potential savings
were siphoned abroad.

This 'drain' of funds from India to the UK
has been a point of major controversy between Indian nationalist
historians and defenders of the British raj. However, the only real
grounds for controversy are statistical. There can be no denial that there
was a substantial outflow which lasted for 190 years. If these funds had
been invested in India they could have made a significant contribution to
raising income levels. (Pg 20)”

The total ‘drain’ due to government
pensions and leave payments, interest on nonrailway official debt, private
remittances for education and savings, and a third commercial profits
amounted to about 1.5 per cent of national income of undivided India from
1921 to 1938 and was probably a little larger before that… about a quarter
of Indian savings were transferred out of the economy, and foreign
exchange was lost which could have paid for imports of capital goods.

Separately, Dadabhai Naoroji estimated the economic costs and drain of
resources from India to be at least at 12m per annum. Here is an extract
from one of his essays, “The
Benefits of British Rule[v],
1871”

“Financially: All attention is engrossed in devising new modes of
taxation, without any adequate effort to increase the means of the people
to pay; and the consequent vexation and oppressiveness of the taxes
imposed, imperial and local. Inequitable financial relations between
England and India, i.e., the political debt of ,100,000,000 clapped on
India's shoulders, and all home charges also…

Materially: The political drain, up to this time, from India to England,
of above ,500,000,000, at the lowest computation, in principal alone…The
further continuation of this drain at the rate, at present, of above
,12,000,000 per annum, with a tendency to increase.”

Prof.
Richards mentions in his research that: “Between 1757 and 1859… ….Officials
of the East India Company… tapped the productive people and resources of
Bengal and the
eastern Gangetic valley to fund the protracted military campaigns
necessary to conquer India. Over the same century, these same resources
also supplied the wherewithal for a century-long transfer of wealth from
India to Great Britain….”

“…Burke estimated that in the four years ending in 1780 the investment
averaged no less than one million sterling and “commonly Nearer Twelve
hundred thousand pounds”. This was the value of the goods sent to Europe
“for which no Satisfaction is made”. The transfer continued without
interruption and with formal approval from Parliament.”

In 1793,
this devious system of extortion was given official sanction and thus was
paved the path to financial ruin: “By this 1793 Parliamentary
directive, the Company was enjoined to take ten million current rupees (1
million sterling) each year for the investment from the territorial
revenues of colonial India….After 1793, the Company zealously
maintained its annual investments. Between 1794 and 1810, the average
annual cost of the investment was 1.4 million sterling.”

“…In
a recent contribution, Javier Cuenca Esteban …puts the “arguably minimum
transfers” from India to Britain between 1757 and 1815, Plassey and
Waterloo, at 30.2 million sterling. This figure is the estimate of exports
from which there was no compensating import for India.”

Post
1833, when the Company’s commercial operations ceased, the “drain” took
the form of “Home Charges” which represented the expenses in Britain borne
by the Indian treasury.

These
“Home Charges” were a huge burden on the finances and contributed to a
sustained and continuous deficit in the budget throughout the 19th
century.

As Prof
Richards notes, “(pg 17) there were few years in which the Indian
budget was not in deficit. For the entire period (1815 – 1859), deficits
reached a cumulative total of 76.9 million sterling or an annual average
of 1.7 million sterling”.

This
systematic drain was nothing short of a loot – albeit carried over 200
years and under the cover of colonial trade. It left the economy in
shambles and reduce this great country from one of the powerhouses of the
world economy to a laggard which was barely able to sustain itself.

********

THE IMPACT

The
collective impact of these policies and system of exploitation was
severe.

In their preface
to the research, Profs. Clingingsmith and Williamson have this to say:
“India was a major player in the world export market for textiles in
the early 18th century, but by the middle of the 19th century it had lost
all of its export market and much of its domestic market…While India
produced about 25 percent of world industrial output in 1750, this figure
had fallen to only 2 percent by 1900.”

This table
eloquently depicts the impact of almost two centuries of British colonial
rule over India

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